Deficits Don’t Matter – Until They Do – Ep. 328

Orlando Money Show: 20 Trillion and Beyond
I wasn't intending to do a podcast today;  I'm in Orlando at the Money Show, I'm on a stock market panel.  It's going to be fun: Louis Navellier, Mark Skousen, David Callaway  and Chris Gaffney.  My big talk tomorrow should be very interesting. The title is 20 Trillion and Beyond: What the Coming Debt Explosion Will Mean to Your Portfolio.
Dow Jones Closed Down 1,032 Points Today
Now, of course, it's already exploding, but I gave them that headline about a month ago because I already knew that the debt problem was percolating and that was going to be what was going to blow up everybody's portfolio. But when the Dow is down 1000 points twice in the same week, I have to come on and do a podcast.  If you haven't heard the news, the Dow Jones closed down 1,032 points today. The low of the day.  We closed below the intra-day low of Tuesday morning, when the Dow ended up 500.
Successful Test?
Now we're not back down to the lows we hit Monday night, in Asian trading.  We'll probably be there by tonight.  This market is looking ugly. That was a horrible close, we have to go lower.  It's crazy: I was watching CNBC in my hotel room and some guy was on saying, "This might be a successful test if we can just close above Monday's lows!"  Successful test?  A successful test is when you get a huge bounce off the lows.  Even if we had closed above it, that wouldn't have been a successful test - we could have crashed below it the following morning.  But we couldn't even hold it.  We closed on the lows.
Horrible 30-Year Bond Auction Today
And, you know what? Bond yields rose anyway.  1,000 points down in the Dow wasn't even enough to send bond prices higher and yields lower.  The yields on the 10-year and the 30-year rising to new highs for the move.  30-year closed at 3.137.  As I said, horrible, horrible 30-year bond auction today.  Again, why anybody showed up is beyond me, but obviously not as many people showed up as they expected.  Yields on the 10-year, another new high, 2.851 is where we closed.  We got up to 2.884, and the reason we probably didn't close there is because of the 1,000 point drop in the Dow.
Government Spending is Behind the Carnage
But that big drop didn't make interest rates go down, it just kept them from goin up even more.  But nothing is going to stop rates from rising.  Especially if we get this Budget Deal tonight.  Apparently, if they don't get the budget deal tonight, the Government is going to shut down. And if anybody thinks that the Dow is dropping because people are afraid the government is going to shut down, they don't know what they are talking about.  The reason the market is dropping is because the government's not going to shut down. Government spending and borrowing  is behind the carnage in the bond market, which is killing the stock market.